Investors demand more transparency and efficiency

Glenn Freeman | 28 Dec 2016

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Enhanced disclosure of underlying assets held by fund managers is increasingly demanded by Australian investors of all sizes, from super funds to individual self-managed super fund (SMSF) trustees, and digital technology can help address this.

 

In recent years, public discussion of investment technology has centred on digitally-enabled investment advice for consumers--or robo-advice--including mobile applications. However, the impetus for technological change may be having an even more profound an influence via the back-office functions of institutions.

"I think you're going to see more and more demand from investors for details around underlying assets held within portfolios," says Les Andrews, CFO, Aitken Asset Management.

He was speaking in Sydney, at a panel discussion jointly hosted by the Alternative Investment Management Association and KPMG earlier this month.

"Particularly from institutional investors…I think people are just going to want more of a breakdown and explanation of their portfolio on a more regular basis.

"But even smaller investors, those with $500,000 invested in a SMSF…that's a lot of money to someone's SMSF, and they want to know that you have controls and processes in place," Andrews says.

While acknowledging the commercial challenges of balancing this disclosure alongside intellectual property considerations, he says that as an industry, "we need to work out how we can give them a more summarised version."

In terms of providing assurance that fiduciary responsibilities to investors are being met at all levels, he also highlights the important role technology will play.

"People are becoming very astute, so you cannot just say 'that dusty book on the shelf, that's my compliance policy'…you have to be able to prove objectively that you do what you say you do as far as looking after their wealth," Andrews says.

He believes there will also be increasing demand, from both institutional and individual investors, for comprehensive, up-to-date reporting on the use of technology to foster compliance, "for transparency around funds, costs and where the spend is going".

These views were echoed by senior Australian KPMG executives Karlie Lytas, director of wealth advisory practice; and Mandeep Sandhu, director of technology strategy.

Sandhu referred to a potential risk, with some asset managers over-spending on regulation, citing a recent study suggesting around 40 per cent of all IT spend goes on regulation technology, "and that CIOs [chief investment officers] will compromise on other areas."

He and other panellists said some firms were also rolling out "reg-tech" in a more piecemeal process, to spread the cost over multiple years, which also delays the efficiency benefits.

"This [40 per cent] figure needs to drop down because it's just not sustainable, because your business and your customers suffer," Sandhu says.

Andrews also cites these delays, which are particularly common among larger organisations in the financial space as they implement technology to enable straight-through processing and real-time risk information reporting.

"I think the smaller companies in wealth management are a lot more dynamic…and refer to some of the bigger organisations as 'death stars' because a lot of the IT people have a lot of outstanding ideas, a lot of very good tech going into them, and yet there's just barrier, after barrier, after barrier of internal conflicts of interest that may prevent that dynamism being taken up with the speed at which it should be," he says.

Lytas emphasises the efficiency benefits technology can bring to the core investment portfolio management role of hedge funds and other asset managers.

"It doesn’t matter who the consumer is or who the customer is, there's a big focus on making sure that we're giving the right level of data so that we can make good investment decisioning…that is one of the key drivers for change that we're going to see across wealth management.

"There are great leaps and bounds being made in the Australian market, of the need to be more digitally-enabled and to create more efficiency. And there's a growing demand from investors," Lytas says.

"I think the push overseas, in particular in Europe, has seen more change at a faster pace, and that's being pushed by regulation, the need for greater transparency and the like…but I think Australia is leaping in bounds to catch up."

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Glenn Freeman is Morningstar's senior editor.

© 2016 Morningstar, Inc. All rights reserved. Neither Morningstar, its affiliates, nor the content providers guarantee the data or content contained herein to be accurate, complete or timely nor will they have any liability for its use or distribution. This information is to be used for personal, non-commercial purposes only. No reproduction is permitted without the prior written consent of Morningstar. Any general advice or 'class service' have been prepared by Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), or its Authorised Representatives, and/or Morningstar Research Ltd, subsidiaries of Morningstar, Inc, without reference to your objectives, financial situation or needs. Please refer to our Financial Services Guide (FSG) for more information at www.morningstar.com.au/s/fsg.pdf. Our publications, ratings and products should be viewed as an additional investment resource, not as your sole source of information. Past performance does not necessarily indicate a financial product's future performance. To obtain advice tailored to your situation, contact a licensed financial adviser. Some material is copyright and published under licence from ASX Operations Pty Ltd ACN 004 523 782 ("ASXO"). The article is current as at date of publication.


 

This report appeared on www.morningstar.com.au 2017 Morningstar Australasia Pty Limited

© 2017 Morningstar, Inc. All rights reserved. Neither Morningstar, its affiliates, nor the content providers guarantee the data or content contained herein to be accurate, complete or timely nor will they have any liability for its use or distribution. This information is to be used for personal, non-commercial purposes only. No reproduction is permitted without the prior written content of Morningstar. Any general advice or 'class service' have been prepared by Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), or its Authorised Representatives, and/or Morningstar Research Ltd, subsidiaries of Morningstar, Inc, without reference to your objectives, financial situation or needs. Please refer to our Financial Services Guide (FSG) for more information at www.morningstar.com.au/s/fsg.pdf. Our publications, ratings and products should be viewed as an additional investment resource, not as your sole source of information. Past performance does not necessarily indicate a financial product's future performance. To obtain advice tailored to your situation, contact a licensed financial adviser. Some material is copyright and published under licence from ASX Operations Pty Ltd ACN 004 523 782 ("ASXO"). The article is current as at date of publication.